Can I sell my Primary home to my LLC?

Question

I know there are pros and cons to selling my primary home to my LLC but my question really goes a little deeper than just tax benefits:

I am curious to know if I sell my primary home to my LLC regardless of tax benefits; and then rent it back to myself (through another LLC) … technically I don’t have a primary residence anymore so I could buy a Multifamily or Apartment complex as long as I am willing to live in one of the units correct?

I ask this question because I have an opportunity to do something similar and the Multiunit would give me more than enough to pay the rent on the home and still Net at the end of the day….but is it legal??

Robert Rixer · Answer

If you've lived there a year or more, it would satisfy the occupancy clause on most standard loans and you're good to do what you're proposing minus all the LLC shenanigans. You can actually move before the year mark if you have a legitimate life event that caused you to move out. It would definitely raise red flags if you did this multiple times.

John Squares · Answer

Evan thanks for the reply…. I am currently in a VA mortgage which has a two-year requirement. I am beyond the two years required.

What I am trying to do is find a way to buy a multifamily using FHA 3 1/2% down payment as opposed to 20% or 25% as an investment property.

I have a situation where it would be beneficial for me to try and help my mom and my sister move into a place  because I can afford to purchase it… The grey area is whether or not they are considered family members per FHA guidelines to qualify for the 3 1/2% down payment. on the FHA website… It says family members are considered parents, sisters, brothers, etc.

I am definitely not trying to do anything illegal, I just thought maybe if I sell my primary residence… I could buy the multiunit per FHA guidelines as long as my mom and my sister are considered family.

I have been told that the 12 month or 24 month living requirement only requires one family member to live in the home… So if my mom and my sister are considered family members… Does that meet the requirement?

Evan Polaski · Answer

@John Squares, like others noted, is it legal: sure.

Could it prompt some form of action on your current mortgage, like Jason notes, maybe.

Do you need to transfer to your LLC in order to get another owner-occupied mortgage on the multi?  Typically, no.

I bought my first primary residence in 2007.  Personal, owner occupant mortgage, in my name.  In 2012 I bought a duplex, with the intent of moving in.  Also personal, owner-occupant mortgage, in my name.  I could not end up selling or renting my original primary residence, in 2012.  So I ended up renting both units of the duplex for a year.  In 2013, we relisted my original house, sold it and moved into one of the units of duplex.

I had both mortgages in my name.  Both titles in my name.  And, even though I had an owner-occupant clause on my duplex mortgage for the first 12 months, and didn't actually move in, no one ever caught me, or called my mortgage or anything.  I don't recommend you knowingly take out an owner-occupant mortgage with no intention of honoring that clause, but I know many people that do it, and have never met anyone that got caught.

The moral being: while I am sure you can do all those things you are asking about, I, personally, don't see why you would go through the trouble and costs, when you don't need to to get mortgage on the multi.

Ko Kashiwagi · Answer

Hi John,

What is your occupancy requirement for your current mortgage? If you have cleared it, you can move out do house hack the next one. If you are required to stay for the coming months, you'd want to confirm with the lender.

Jason Wray · Answer

John,

I am not sure I see the major benefit of that conversion and just as an FYI you cannot put the title or change the vesting to an LLC unless your Bank/Lender allows.  If they do not allow then the loan can be "Due on Sale" and violate your agreement.  Even if you live in a Home or one of the Units you can still set the address or other units up on your "Schedule E" and claim the standard deductions.

To be totally compliant I would tell you to refinance and transition the property into an Investment property and close it in an LLC.  That will allow you to buy another home as a primary and reap the benefits of the increased passive income & deductions.